At COP28, financial sector innovation bolsters headlines

COP28 in Dubai had all the ingredients for both decisive action and controversy. Given the UAE’s status as a significant fossil fuel producer, it was seen by many as the host likeliest both to commit significant resources as well as face criticism from climate campaigners.

Perhaps inevitably, both happened.

First, action. COP28 produced the most deliberate commitment from participants to move away from fossil fuels, in the form of its annual “global stocktake”. From day one, the UAE made it clear it would deliver on expectations for large scale financial commitments, demonstrated by the Emirati government’s pledge to create a $30 billion climate-focused investment fund, Alterra. This move was met with widespread praise and announcements of further support from other nations. Less noticed, but just as significant, was the announcement the following day that the multilateral funds set up under UN auspices would begin to coordinate their mitigation efforts.

Later, controversy. By day four, headlines quoting COP28 president, Sultan al-Jaber, as saying that there is “no science” behind calls to phase out fossil fuels cast a wide shadow.

As expected, the early news out of Dubai was both powerful and contentious. Looking back, however, there is much more cause for hope than doubt that can be taken from COP28.

Those on the ground, myself included, bore witness to a significant level of innovation on display, evidence of how much deep thinking has been going on behind the scenes in the finance sector. The launch of a climate finance new think thank, the Global Climate Finance Centre, hosted by the UAE’s Abu Dhabi Global Market and co-funded by ADQ, Blackrock, HSBC, Ninety One and others, was also a much noticed early announcement.

Elsewhere, participants delved into various novel investment strategies aimed at addressing the most critical global concerns. Among the proposals explored were specialized food and agriculture funds, notably from Principal Asset Management and Federated Hermes. These funds, aligning with the newly introduced TNFD regulations, aim to channel investments to improve food security for the world’s most vulnerable populations. Additionally, innovative approaches from State Street involving agricultural mortgages and the utilization of securitization techniques were discussed as mechanisms to increase financial flows for smaller-scale farmers.

In the race to achieve the ambitious goals set last week, allocating capital to high-emitting sectors will remain critical to real-world decarbonization. The role of private equity in this effort was a focal point for many. Multiple participants engaged in discussions centered around where private capital can make the most impact, particularly toward hard-to-abate assets that need to make the transition from “grey to green” The desire from investors to look beyond the consensus view on the role private markets can play in helping transition energy production towards a more sustainable mix was evident.

By the time the final text and global stocktake was published, it was clear that the intense multilateral effort had produced further progress, albeit after arduous negotiations. Were I focused on the short term, COP28 achieved too little. But, zooming out, I sense there are more capital and countries committed to this effort than ever before, and explicit mention of the shift away from fossil fuels is a sign of more to come. Furthermore, the work being done on the sidelines by the investment community bodes well for the effort to reach net zero.

From this point on, it will be incumbent on all those who made COP28 headlines – governments, corporates, and investors alike, to follow through with concrete action that helps build stakeholder trust in the multilateral process, and in the ability of business leaders to deliver change.

Olivier Lebleu is senior advisor at FCLTGlobal.